Econ 1101 1st EditionExam # 1 Study Guide Lectures: 1 - 13Lecture 1 (January 21)What is economics?Economics is the study of choiceList some solutions to textbooks being a durable good (only needed for a short time and can be used over and over).New editions, different pages, renumber practice problems, bundle content, mutilate books, etc.Lecture 2 (January 23)Distinguish between single-sided and double-sided auctions.Double-sided auctions have both buyers and sellers bidding. Sellers lower their price in order to get buyers to buy and buyers raise their bids in order to buy the good. Single-sided auctions have only the buyer or seller bidding in the auction. Only one side can raise or lower the price.With a low or high bid would you have a better chance of selling your good in a single sided auction?A low bid would ensure sales, although a high bid would guarantee profit.How are prices affected in a competitive market?In a competitive market, the prices are driven down because of the mere fact competition works. Where there is the best price is where you will find buyers.What happens in a uniform price auction?In a uniform price auction, everyone gets paid the amount of the highest bid that clears the auction. It is safer to bid close to cost just to assure you are in the auction. If there is someone with a higher bid than you that makes the auction, then you will receive the bid he submitted, as will every other seller.Lecture 3 (January 26)Why bid at cost?Your choice of bid determines whether you’re in or out of the market. If you bid more than yourcost and the system price is higher than the cost, then you are out. If you bid less than your costyou risk the sale price being above your bid but less than cost, therefore you will lose money.What is equilibrium?When supply meets demand and the market is stable. The price and quantity must be such that the price is stable.Lecture 4 (January 28)What causes shifting in the demand curve?Preference of buyers, prices of good, income of consumers, number of buyers, and smaller things like weather and season, advertisement, and competitor change.Distinguish the difference between a normal and inferior good.A normal good is a good that when your income goes up, you buy more, and in reverse if your income goes down, you buy less. It is proportional.An inferior good is a good such that when the income goes up, the demand goes down.Lecture 5 (January 30)What are some causes of supply shifts?Price of input (for example labor or material used)Number of sellers (for example wheat farmers switching to corn)Technology (for example new seeds or fertilizer)Lecture 6 (February 2)What would we call the responsiveness of supply and demand to changes?Elasticity. We know a curve changes but we want to know by how much, so we use elasticity.Lecture 7 (February 4)Inelastic and Elastic are opposites. What are the differences between them?In a perfectly inelastic demand or supply, the demand or supply does not change when the pricechanges. In a perfectly elastic demand or supply, the demand or supply changes as the price changes.Why can’t elasticity be calculated over the long run?Over a long period of time different factors effecting the number of consumers, consumer preference, and change of laws stops us from being able to calculate elasticity accurately.Lecture 8 (February 6)What makes a demand more elastic?The more specific you get, the more elastic a good will be. For example food is less elastic than meat, which is less elastic from steaks.What is marginal cost?The price of the next one in. Think of the additional cost to sellers as a group due to the next unit.Lecture 9 (February 9)How do we measure how happy consumers are?Consumer surplus. Consumer surplus is the reservation price minus the price paid.Name the Three General Principles of Efficiency.1) Efficient Allocation of Consumption (consumers with the highest willingness to pay go first.2) Efficient Allocation of Production (producers with the lowest cost to sell sell first)3)Efficient Quanity (quantity is the most amount of consumers that are willing to buy and be indifferent buy.)Lecture 10 (February 11)What is the difference between Pareto Efficient, First Welfare Theorem, and the Adam-Smith Theorem?First Welfare Theorem is when an unregulated market (laissez-faire) allocation is Pareto Efficient.Pareto Efficiency is an allocation that is feasible and there is no better way to make someone better off without making someone worse off.The Adam Smith Theorem is the concept of the Invisible Hand. No matter what the market creates the biggest surplus possible. (Basically Pareto Efficiency) A tax on a good does what to the market?It makes the market inefficient. A tax on a market also establishes a deadweight loss which hurtsthe overall market and disallows it from being Pareto efficient.Lecture 11 (February 13)What is welfare analysis?Welfare analysis is how consumer surplus, producer surplus, and total surplus changes with tax.Who gets the tax burden when the demand is inelastic?Suppliers possess the tax burden when the demand is more elastic.Explain a Subsidy.A subsidy is the opposite of a tax. The government gives consumers money to buy the good to stimulate purchase of a product.Lecture 12 (February 16)Why are subsidies useful?You get the amount of buyers you want to buy in the market. It encourages consumption of the product. An example would be the government subsidizing hybrid vehicles to encourage a greener world.Is Government efficient?Between tax and subsidies, government is NOT efficient. With tax, there is deadweight loss and the market is not efficient. With subsidy, there is also deadweight loss and the market is again inefficient.Lecture 13 (February 18)If the price ceiling is above the equilibrium price, is it binding or non-binding?The price ceiling would be non-binding, because the cost would remain around the equilibrium price and not reach the price ceiling, therefore the price ceiling isn’t a binding factor in the market.What does quota determine?Quota determines the quantity sold in a market. Instead of fixing the price, the government fixes the quantity allowed to be sold and produce. This creates a quota exchange. An example ofthis would be the milk market in